Given the change in price estimated using (18), the change in producer surplus can be calculated
by the following equation:
∆PS = PS0 Qfd EPcd (1 + 0.5 EQfd) --------------------------------• T (19)
1 - -г------:—∑— ------г
s1(η + ηfdηf) + (1-s1)(ηx + ηfdηf)
where a subscript of 0 denotes baseline conditions, E denotes a proportionate change in a variable, and T
is the assessment collected from domestic producers.
Based on the expression in (18), our estimated parameters, and the average supply price and
quantity from 1996 through 2000, a 1 percent increase in annual promotional expenditures would have
resulted in an average price increase of 0.02 percent under free market conditions. A 1 percent increase in
annual nonagricultural research expenditures, on the other hand, is estimated to raise cotton prices by 0.30
percent. Taken together, these results imply that a 1 percent increase in expenditures on both promotion
and research would increase cotton prices by 0.32 percent. The increase in quantity given an estimated
increase in price is calculated by multiplying the proportionate increase in price found using (18) by the
estimated supply elasticity. The proportionate changes in quantity implied by a 1 percent increase in
annual promotional expenditures, annual nonagricultural research expenditures, and total demand-side
expenditures are 0.01 percent, 0.14 percent, and 0.15 percent, respectively.
Using the simulated changes in price and quantity resulting from CRPP activities, estimated
parameters, and the average values of price and quantity from 1996 through 2000, we calculated net
changes in producer surplus over that period using (19). This net change in producer surplus was then
divided by the change in assessment paid by domestic producers for calculating the ROI.
In addition to calculating the ROI assuming a free market, we also examined the effects on the
returns to the CRPP under several variations of government cotton support programs. Table 3 shows the
estimated ROI under different government programs as well as a weighted ROI measure based on the
number of months each was in effect during 1996 through 2000. These results show that when the Step 2
program is in effect, there is a significantly larger benefit of promotion and research to producers. This is
because the effective price faced by consumers of raw cotton (primarily foreign and domestic textile
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